Court ruling punches $29.7 million hole in current budget

AUGUSTA, Maine — A U.S. District Court judge has ruled that state health officials overcharged the federal government for managing Medicaid cases in Maine in 2002 and 2003, and must repay nearly $30 million as a result.

The Feb. 25 decision from U.S. District Judge John Woodcock found that the Maine Department of Health and Human Services improperly sought and received $29.7 million in federal reimbursement under Medicaid’s targeted case management program, which allows for federal reimbursement for state efforts to ensure that those who are eligible for Medicaid benefits receive them.

“We knew this was a possibility,” said Finance Commissioner Sawin Millett. “Commissioner [Brenda Harvey] told us last April about the case and we set aside enough funds to pay this if it had happened when the Legislature was not in session.”

The problem, Millett said, is that while the money has been set aside to pay the federal government, it will leave a hole in the current budget that ends June 30. He said he will recommend to Gov. Paul LePage that the bill be paid from state reserves, often called the rainy day fund, and acknowledged that will significantly deplete those reserves.

“It cleans out two-thirds of it,” he said. “We started the year without about $35 million in total and we have a little interest on top of that, but it will clean out all but about $6 million.”

Millett said there could be even greater needs for Medicaid funds by the end of the year as demand for Medicaid-funded services continues to grow and the reserves are the only way to pay bills that occur in the closing few months of a budget year.

“I want the committee to be aware of this,” he told the Appropriations Committee. “The welfare trend lines are going up.”

The use of the reserves causes concern among members of the panel. Rep. Peggy Rotundo, D-Lewiston, is the Democrat lead and a former chair of the panel.

“I would hate to see it come out of that,” she said. “That is an important fund for us to have and it impacts our bond rating.”

Rotundo said that in the past the major bond rating firms have cautioned the state that reserves are one of the measures they use in determining state credit ratings. She said a reserve of just $6 million for a two-year budget of $6 billion is not enough with the economy still struggling to recover.

Millett said there may be other options for funding the bill, but he is not ready to say whether the administration will support alternative sources of funding.

“Because I am seeing revenue increasing over the biennium and if we can use some of that money to pay this back then it doesn’t put us in position of draining that rainy day fund,“ said Rep. Ken Fredette, R-Newport, a member of the panel. “Maybe it is easier to deal with this in the next budget than finding it in the next 120 days.”

Millett said there are constitutional limits on the ability of the Legislature to borrow money even for a short term. He said the administration will look at all options and make a formal recommendation to the Legislature.

Sen. Richard Rosen, R-Bucksport, is the co-chairman of the panel. He said it will be up to the administration to recommend how the state handles the problem, although it will ultimately be up to the Legislature to decide how to pay the bill.

“We are really still in the information collection mode,” he said. “We will want to know what are our options, and we are still learning about those.”

The program that is causing the problem — targeted case management — was stopped shortly after the federal Centers for Medicare and Medicaid Services raised concerns with the practice in 2004. Millett said that means the court decision is a “one-time” cost and does not pose budget problems in the future.

The federal district court decision was in the state’s appeal of an administrative decision by federal officials finding that the state improperly sought federal funds for targeted case management. In his ruling, Judge Woodcock ruled against the state on each of its arguments, and found the state improperly sought reimbursement for administrative functions not directly related to Medicaid.

Millett said he will be meeting with the Attorney General’s Office to see what legal options the state may have, including whether an appeal is possible.